Year-End Tax Planning for Construction Companies
Managing a construction or contracting business is often a difficult and time consuming requiring focus to be spread across a number of areas.
See also Construction
In addition to managing existing projects, there is also the time needed to bid on new project, human resource concerns and of course taxes and financial reporting. Unfortunately, like most businesses taxes are often put at the bottom of the list in favor or more pressing customer matters. Much like large scale construction projects, tax planning and management is not something that can be considered once per year and put on the back burner; rather it should be part of a quarterly review process. Now that the 4th quarter is here companies should be aware of new, existing and potential changes that can provide a tax savings to the company. To help clients, prospects and others, Hanson & Co has provided a brief summary of some important key points to consider in your 2015 tax planning.
Section 179 Changes – Congressional Approval Needed
For the past several years, Section 179d expensing has provided construction and other companies with a compelling tax incentive for making large purchases. The deduction limit was set to $500,000 to stimulate investment and it included a 50% first year bonus depreciation allowance as well. At the end of last year, both the deduction limit increase and bonus deprecation allowance expired. This means that for 2015 there are currently very limited expensing incentives. Although there has been a lot of talk in Washington about reinstating the prior amounts Congress has not taken steps to yet to make that happen. While we cannot predict the future it’s important to be aware that the Section179d expensing limits may be favorably changed before the end of the year. For this reason, if you are considering making a large purchase doing so may still be tax advantageous by year end.
Tangible Property Rules – New Guidance
2014 established clarity in the construction industry in terms of IRS rules on tangible property (buildings, machinery, equipment, and vehicles) in terms of what repairs could be expensed, versus what activities were considered capital improvements and need to be expensed. Several important provisions define safe harbors for routine maintenance expenses and qualified small business properties, as well as increasing the threshold amount before depreciation is required for materials and supplies.
The IRS defines routine maintenance as activities your construction business can reasonably expect to perform more than once during the property’s service life to keep it in efficient operating condition. Routine maintenance is generally considered a deductible expense.
However, be aware that “de Minimis” apply to the safe harbor election for expensing repairs, and these rules are based on whether a company has audited financial statements. Businesses with audited financial statements can elect (in writing) to deduct expenses costing less than a specified dollar amount provided each invoice doesn’t exceed $5,000 (or per item if substantiated on the invoice). But, if no audited financial statements exist, the election is $500 per invoice/item.
Energy Deduction- Often Overlooked
One of the deductions most often missed by contractors is the Energy-Efficient Commercial Building Deduction (Section 179D). If you build an energy-efficient building for your own use, or make improvements to increase the energy efficiency of a building you own, you may be eligible to deduct up to $1.80 per square foot.
Buildings not owned by you, but rather federal, state or local governments, the deduction may be allocated to the contractor responsible for the energy-efficient construction or modification. If you’ve done work on schools or other government buildings, that included making energy-saving enhancements to systems, such as the building envelope, HVAC, hot water, and interior lighting, be sure to investigate eligibility for this tax-saving deduction.
Affordable Care Act (ACA) – New Reporting Requirements
In 2015, there is a number of new compliance requirements that companies in every industry must be prepare. The impact of these requirements on both time needed to prepare for and new tax liabilities will be dictated by whether your company is considered a small or large business.
- Small Businesses - Through the Small Business Health Options Program, small employers can buy affordable insurance. You may even qualify for a tax credit if you have fewer than 25 full-time employees earning an average of less than $50,000 per year, and you cover at least 50% of their health insurance premiums. However, if you self-insure, you must report certain information for each employee you cover, and you may also be required to pay a fee to help fund the Patient-Centered Outcomes Research Trust Fund.
- Large Businesses - Large employers also face new reporting requirements for 2015. Large employers need to report the value of coverage provided to each employee on their W-2 forms. Additionally, a return must be filed in 2016 reporting what health insurance was offered to employees (if any). Until 2015, such reporting was optional. What’s more, you may have to make a payment under the ACA’s employer shared responsibility provision if you don’t offer adequate coverage (as defined under the law).
There were a lot of changes in 2015 which includes new reporting requirements, changes to existing incentive levels and rules and regulations. Change means opportunity but it must be carefully planned out. If your company has not focused on tax planning for 2015, contact Hanson & Company today! For additional information on these and other key tax programs, call us at (303) 388-1010, or click here to contact us. We look forward to speaking with you soon!